Statistics consistently show that the majority of people are unprepared from an estate planning perspective. Clearly, younger adults typically feel as though they have plenty of time to take this action, but surprisingly, a significant percentage of people that are in their 50s and 60s have no inheritance planning documents in place.
Because there is so much procrastination, in many cases, someone who finally takes action will stash the documents somewhere for safekeeping and forget about the matter. In some instances, an estate plan can sit collecting dust for decades. Unfortunately, this can yield very negative results.
Estate planning should be viewed as a process, not a one-time event. Things in your life are invariably going to change over the years, and your family dynamic and your evolving financial situation can call for an estate plan update. There are also things that are out of your control, like tax laws, that can be part of this equation.
When it comes to taxation, at the beginning of 2018, the federal estate tax exclusion was raised to $11.18 million. This is the amount that can be transferred before the tax would kick in. During the previous year, it was $5.49 million, and it had been in this vicinity since 2011.
If you constructed your estate plan when the exclusion was lower and you were exposed to the tax, the strategy that was implemented then may not be appropriate if your estate is no longer in taxable territory. The same dynamic can work in the reverse manner if a legislative measure is passed in the future that reduces the amount of the estate tax exclusion.
Changes in Marital Status
One life event that will definitely trigger the need for an estate plan update is a change in marital status. If you get divorced, and your former spouse was the beneficiary of your individual retirement account and your insurance policies, you would probably want to make adjustments.
There is another scenario that can occur along these lines that can be somewhat confusing for laypeople that don’t understand all of their options. If you are a divorced parent, and you get remarried to someone considerably younger than you, how do you proceed from an estate planning perspective?
You want to provide for your new spouse, but you also want to make sure that you protect the interests of your children over the long haul. If you simply leave all or most of your resources to your spouse directly, he or she may bypass your children entirely.
This type of situation is typically accounted for through the creation of an estate planning device called a qualified terminable interest property trust. If you were to implement this approach, you would fund the trust make your spouse the first beneficiary.
Assuming you predecease your spouse, the trustee that you name in the trust agreement would distribute the earnings from the trust to your surviving spouse. Your spouse could also continue to live in a home that you have conveyed into the trust or use any other type of property that is held by the trust if this is consistent with your wishes.
Since the purpose of this strategy is to ultimately provide for your children, you would name them as the final beneficiaries of the qualified terminable interest property trust. We should emphasize the fact that the first beneficiary would not have the ability to alter the terms of the trust in any way.
After the death of your surviving spouse, your children would assume ownership of assets that remain in the trust.
General Estate Plan Reviews
In some cases, the need for an estate plan adjustment is pretty obvious. This being stated, even if there have been no hugely significant changes in your life, you should have your estate plan reviewed by an estate planning attorney periodically. We find that people sometimes do not even remember all the details when they established their estate plans years ago.
Download Our Free Estate Planning Worksheet!
We go the extra mile to provide many different resources for people in our area that are interested in the legacy planning process. One of them is the estate planning worksheet that has been devised by our Pittsford trust administration lawyers. It is free, and you can click the following link to access your copy: Free Estate Planning Worksheet.
Michael Robinson, Estate Planning Attorney
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